Case BriefsHigh Courts

   

Telangana High Court: While exercising its powers under Article 226 in case relating to delay in payment under One Time Settlement (‘OTS’) Scheme, K. Lakshman, J., grants extension of time to repay the Bank as there was only a day’s delay in making the payment, hence the OTS Scheme will not be cancelled.

Facts:

The petitioner is in the real estate business, constructing and selling flats. He took a loan from State Bank of India (‘Bank’) during his course in business. Due to Covid- 19 pandemic situation, the petitioner sustained huge losses. The petitioner was unable to repay the loan amount therefore, the Bank declared the account of the petitioner as Non-Performing Asset (‘NPA’) on 30-10-2020. However, to pay the said amount in terms of OTS, the petitioner sold his agricultural land.

Vide circular dated 12.10.2020, SBI OTS Scheme was offered which was applicable to all the NPAs as on 31-03-2020 with outstanding dues of above Rs. 20 lakh and up to Rs. 50 Crore.

According to the terms and conditions of the OTS Scheme, the balance amount was supposed to be paid by 27-07-2021. The petitioner submitted a letter dated 28-07-2021 enclosing the cheque which the bank refused to accept based on time lapse. On 31-07-2021, the bank cancelled the OTS scheme and demanded the entire outstanding amount with interest.

Arguments:

The Counsel for the petitioner contended that there is delay of only one day as on 28-07-2021. Further the counsel contended that the bank failed to consider the request made by the petitioner that due to the present COVID-19 pandemic situation, the petitioner is unable to pay the loan amount within the stipulated time.

Observation and Analysis

The Court relied on the illustrative guidelines laid down in Anu Bhalla v. DM, Pathankot, 2020 SCC OnLine P&H 4387 where the division bench held that the Court has power to extend the period of settelement while exercising its jurisdiction under Article 226 of the Constitution. Keeping in view of the guidelines, the Court held that the petitioner is granted extension to repay the OTS amount within 10days.

The Court held that as there is only one day’s delay hterefore, it is a fit case to extend the time to the petitioner to repay the loan amount.”

[Md. Afroz Baig v. State Bank of India, 2022 SCC OnLine TS 1804, decided on 19-09-2022]


Advocates who appeared in this case:

For the Petitioner: E. Madan Mohan Rao, Senior Counsel

For the Respondents: Mettu Srinivas Reddy, SC for SBI

Case BriefsSupreme Court

Supreme Court: The bench of AM Khanwilkar and Dinesh Maheshwari, JJ has restored the NCLT order wherein it was held that the lenders of Jaiprakash Associates Limited (JAL) were not the financial creditors of the corporate debtor Jaypee Infratech Limited (JIL) and that the transactions in question were to defraud the lenders of the corporate debtor JIL. The Court held,

“such lenders of JAL, on the strength of the mortgages in question, may fall in the category of secured creditors, but such mortgages being neither towards any loan, facility or advance to the corporate debtor nor towards protecting any facility or security of the corporate debtor, it cannot be said that the corporate debtor owes them any ‘financial debt’ within the meaning of Section 5(8) of the Code; and hence, such lenders of JAL do not fall in the category of the ‘financial creditors’ of the corporate debtor JIL.”

The Court was hearing the case relating to JAL, a public listed company with more than 5 lakh individual shareholders, which was facing insolvency proceedings under the Insolvency and Bankruptcy Code, 2016. In the year 2003, JAL was awarded the rights for construction of an expressway from Noida to Agra. A concession agreement was entered into with the Yamuna Expressway Industrial Development Authority. Coming on the heels of this project, JIL was set up as a special purpose vehicle. Finance was obtained from a consortium of banks against the partial mortgage of land acquired and a pledge of 51% of the shareholding held by JAL. The banks in question instituted a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 before the NCLT, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against JIL, while alleging that JIL had committed a default in repayment of its dues to the tune of Rs. 526.11 crore.

NCLT in it’s order held,

“the transactions in question were to defraud the lenders of the corporate debtor JIL, as 858 acres of unencumbered land owned by the corporate debtor to secure the debt of the related party JAL was mortgaged in the midst of the corporate debtor’s immense financial crunch, while continuing with default towards the home buyers and financial creditors and after it had been declared as Non Performing Asset, in utter disregard to fiduciary duties and duty of care to the creditors; and further that the mortgage of land was created without any counter guarantee from the related party and with no other consideration being paid to the corporate debtor.”

While interpreting Section 43 of the Code, the Supreme Court noticed that the transfers in question could be considered outside the purview of sub-section (2) of Section 43 of the Code only if it could be shown that same were made in the ‘ordinary course of business or financial affairs’ of the corporate debtor JIL and the transferees. It, however, further explained that even when furnishing a security may be one of normal business practices, it would become a part of ‘ordinary course of business’ of a particular corporate entity only if it falls in place as part of ‘the undistinguished common flow of business done’; and is not arising out of ‘any special or particular situation’.

“It is difficult to even surmise that the business of JIL, of ensuring execution of the works assigned to its holding company and for execution of housing/building projects, in its ordinary course, had inflated itself to the extent of routinely mortgaging its assets and/or inventories to secure the debts of its holding company. It had also not been the ordinary course of financial affairs of JIL that it would create encumbrances over its properties to secure the debts of its holding company.”

Holding that the NCLAT had not been right in interfering with the well-considered and justified order passed by NCLT, the Supreme Court said,

“the transactions in question are hit by Section 43 of the Code and the Adjudicating Authority, having rightly held so, had been justified in issuing necessary directions in terms of Section 44 of the Code.”

The Court, hence, concluded:

“1) The impugned order dated 01.08.2019 as passed by NCLAT in the batch of appeals is reversed and is set aside.

2) The appeals preferred before NCLAT against the order dated 16.05.2018, as passed by NCLT on the application filed by IRP, are dismissed; and consequently, the order dated 16.05.2018 so passed by NCLT is upheld in regard to the findings that the transactions in question are preferential within 171 the meaning of Section 43 of the Code. The directions by NCLT for avoidance of such transactions are also upheld accordingly.

3) The appeals preferred before NCLAT against the orders passed by NCLT dated 09.05.2018 and 15.05.2018 on the applications filed by the lender banks are also dismissed and the respective orders passed by NCLT are restored with the findings that the applicants are not the financial creditors of the corporate debtor Jaypee Infratech Limited.”

[Anuj Jain v. Axis Bank Ltd., 2020 SCC OnLine SC 237, decided on 26.02.2020]